If It Don't Make Dollars, It Don’t Make Sense: Getting Paid Royalties after Acquiring a Mineral Property

Apologies to John Locke and anyone who purchases minerals solely to exercise one’s natural right to own property, but the main purpose of buying mineral properties is to make a profit. Unfortunately, however, many mineral owners will face challenges collecting the payments owed to them under an oil and gas lease due to various material defects affecting their ownership of these properties. In these instances, a mineral purchaser potentially paid millions of dollars to acquire lands they cannot yet profit from. More informally stated, their spent dollars do not yet make sense (cents). Here at RR&A, we possess the knowledge and experience to correct these defects and best ensure you receive the money owed.

Without getting too into the weeds, mineral owners are generally entitled to royalty payments from their leases. Royalty payments are a fraction of the revenue paid to the mineral owner according to the terms of their lease. The Operator of a well producing from the purchased mineral property is responsible for making these royalty payments. Although always subject to the actual terms of the lease, Operators must abide by what is often referred to as “royalty payment statutes” governing when payment must be made and when payments can be withheld in many states. For example, Texas has the Texas Natural Resources Code (the “Code”). Section 91.402(a) of the Code sets forth when the initial royalty payment and subsequent payments must be made.  However, Sections 91.402(b) and 91.402(f) of the Code allow the Operator to “suspend” royalty payments (withholding royalty payments without interest beyond the time limits provided in Section 91.402(a) of the Code). Lastly, Section 91.404 of the Code provides a royalty owner with a cause of action for nonpayment if an Operator does not either make proper royalty payments or timely justify the nonpayment after receiving notice of the nonpayment.

Most suspensions by Operators occur when it is unclear what the purported royalty owner actually owns.  Sometimes, there can be discrepancies in the transfer of mineral properties to their purchasers or previous owners, which may result in incomplete records of ownership in the county records. This can create a “gap” in the “chain of title” and cause the actual mineral owner of the property to not be reflected in the county records.  Additionally, the transfer of the mineral interest may contain a defect making it unclear what is actually being transferred, such as the sometimes complex “double fraction problem” where a deed grants some iteration of “1/2 of 1/8 royalties.” This phrase may be interpreted as granting “1/2 of royalties” or “1/16 of royalties,” as discussed in numerous cases and on a recent episode of the Minerals and Royalties Podcast featuring RR&A’s Van Dyke v. Navigator case law update.

RR&A can assist you through all phases of your mineral acquisition to ensure you are able to collect the royalties owed to you. We have a wealth of experience providing mineral acquisition title opinions confirming the type and amount of interest you intend to purchase, and setting forth the defects associated. In addition to that, negotiating the terms of your acquisition, drafting oil and gas leases, working with Operators to draft and record documents that cure any reasonable defect causing a suspension of royalties, and sending demand letters to Operators for failure to pay royalties to our clients. Please contact us so we can help make the most sense of your spent dollars.

Read Related Posts

I Have My Minerals – Now Where are My Royalties?

Claiming Your Share: Investor’s Playbook for Mineral Lease Enforcement

Demand Letters
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Matt Dishong

Matt is a Senior Associate at R. Reese & Associates and part of the Land and Title team. Matt has experience assisting clients by preparing drilling and division order title opinions, drafting curative documents, and performing due diligence for complex, large-acreage transactions. To learn more about Matt, visit his attorney page.

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